High Val­u­a­tion = very high expec­ta­tions embed­ded in the cur­rent valuation.

Red Flags:

Misleading Earnings: FDX reported a $1.1bn increase in GAAP earn­ings** while our model shows eco­nomic earn­ings declined by $107mm. The main driver of the difference between Economic and Accounting earnings is FDX’s $11.9bn of off-balance sheet debt, a big number compared to $19.7bn in Net Assets and $25.6bn of market value.

The company’s ROIC is in the Bot­tom Quin­tile of all the com­pa­nies we cover.

Over­all, the Risk/Reward of invest­ing in FedEx’s stock looks Very Dan­ger­ous to me. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price.